A recent Smart Grid News post suggests that many utility executives are failing to ask their managers the “right” questions regarding Smart Grid programs, when considering utility strategic approaches. My perspective differs in that energy executives, more often than not, are in fact asking strategic questions, such as, “What value-added products and services are available once Smart Grid is deployed? How do we derive incremental value from our smart grid investment?” DNV KEMA’s experience in addressing such questions often commence with a focus on more effectively understanding the buying behaviors and drivers for energy consumers, which is further informed through carefully orchestrated customer segmentation analysis.
Utilities have been using many forms of customer segmentation for decades, particularly in the larger industrial customer community. Historically, declining block rates based on usage have been the most common form of customer segmentation. Reliability-based segments have also been commonly used. For example, utilities may install additional network automation to support reliability requirements, or special on-site back-up power equipment. These customers often warranted specially segmented service (network enhancements), generally were willing (initially) to pay specialty prices for this service (power purchase agreements), and were promised a premium form of power delivery service. In most cases, these value-added service enhancements were strategic as they resulted in stronger customer loyalty—especially during the period where cogeneration investments were often touted—and they generally resulted in deployment of new rate-returning assets in the field.
However, utility interest in segmenting residential and small commercial customers for value added opportunities has had a more recent increase in interest. It has evolved from the growing installation of smart meters providing interval data, increases in third-party services targeting consumers directly, and from new approaches and leading practices regarding consumer segmentation, especially from high-tech industries.
With some exceptions, such as life safety customers or multi-family vs. single family premises, a number of utilities may treat small commercial and residential customers as one large segment, generally with little information available to support the offering of any specialized services. There have been some valid business reasons for that approach in the past, but they are giving way to new segmentation models. The most compelling reason is to drive energy efficiency and peak load reduction, in order to optimize the economic return of Smart Grid investments. The Utility of the Future is using advanced analytics to provide a better understanding of customer behaviors, and thereby enable the development of products and services that are specifically designed to meet the needs of certain customer segments.
Such targeting not only improves customer enrollment and economic return, but may also improve customer satisfaction.
This more complex form of segmentation, based on a deep understanding of customer behaviors and preferences, represents the future. For utilities and energy providers with smart metering installations, the time to enhance their customer segmentation strategy is today. Segmentation is central to more effectively understanding and engaging customers, unlocking new business opportunities, and optimizing the return on Smart Grid investments. Now these are the “right” questions and areas of focus for energy executives to consider. What is your view?
By: Rob Wilhite, global director, Management & Operations Consulting, DNV KEMA Energy & Sustainability